What is an Invoice Verification? Key Steps in Checking Invoices

What is Invoice Verification?

Invoice verification, also known as invoice validation, is the process of reviewing invoice details before payment. In other words, one validates the invoice by reviewing the details to ensure payment aligns with the delivered product or service and the agreed-upon terms. It also includes verifying the invoice with the Purchase Order (PO) and Goods Receipts Notes (GRNs).

Accountants, AP professionals, and small business owners often do the verification and approve it when everything is upto the mark. This helps the company maintain strong financial control while managing accounts payable invoices.

Common Invoice Verification Types

There are various invoice verification methods. Professionals use these methods based on risk tolerance, financial controls, and industry requirements. Invoice verification types are classified by matching method and process type.

On the Basis of the Matching Process

2-Way Matching

A 2-way matching method involves comparing the PO and the invoice. Both documents are compared based on price and quantities. It is ideal for small businesses that handle a low volume of invoices.

3-Way Matching

A 3-way matching process involves comparing the invoice, the PO, and the goods receipt note (GRN). Generally, large businesses perform 3-way matching for larger transactions. It requires internal collaboration to align three documents across these teams.

4-Way Matching

4-way matching involves comparing 4 documents: invoice, PO, goods receipt note (GRN), and quality report. Manufacturing businesses, with strict quality standards, primarily use this matching process.

On the Basis of Process Type

Manual Invoice Verification

In this process, professionals manually match invoices to supporting documents. Generally, smaller businesses with low transaction volume follow this method. However, it is prone to human error.

Automated Invoice Verification

This method involves matching documents using the software. This saves professionals time by automating the process. It is generally useful for large enterprises that process high transaction volumes.

What Documents Are Required for Invoice Verification?

Multiple documents are required to verify invoices correctly. Professionals need to cross-check these documents against the invoice and flag any discrepancies. Here are those documents that are crucial for invoice verification:

1. Invoice

An invoice is a payment request issued by a vendor to a customer. It includes issuer details, customer details, line-item descriptions (goods or services), unit price, quantity, total payable amount, and terms.

2. Purchase Order

A purchase order is a product requesting document that the buyer shares with the vendor. Similarly, business professionals share the PO with vendors that includes the required product or service, quantity, and price. This helps the vendor gain a clear understanding of the buyer’s requirements.

3. Goods Receipt Note or Delivery Note

It is also known as a receiving report or delivery note that serves as proof of receipt. The buyer prepares this document to confirm receipt of the goods. PO number, receipt date, item description, quantity received, and receiver’s signature are the key pieces of information in this document.

4. Contract or Agreement

There is a master contract for the complex project or ongoing services. It also covers the pricing structure and payment terms. It is a legally binding contract and clearly defines the scope, pricing, payment terms, and timelines.

5. Tax Documentation

It includes the relevant tax invoices, such as sales tax or VAT. Some businesses require W-9s or W-8BENs and need this information. The primary purpose of tax documentation is to ensure accurate tax calculations and to serve as evidence during an audit.

6. Payment Authorization

This document confirms the invoice’s approval by the authorized parties. Reviewing, verifying, and approving are key actions. This document establishes clear accountability.

Invoice Verification Checklist

The checklist covers all key details the professional should review when auditing invoices. Detail verification varies by company, depending on the strategies in place. Refer to the following invoice verification checklist before processing payments:

1. Mandatory Information to Check

• Invoice details: invoice number, title, issue date, and due date
• Supplier details: name, address, contact information, and tax ID
• Buyer details: company name, address, and GSTIN/Tax ID
• Tax details: tax amount, tax rate, taxable value, and HSN/SAC codes
• Payment terms: payment methods, terms, and bank details

2. Factual & Content Validation

• Goods/Services: Description matches the delivery note (GRN) and PO
• Quantity: Quantity of goods or services delivered to the buyer
• Price: Price at which the buyer purchases goods and services
• Subtotal & discount: Verifying the subtotal and discount amounts
• Total: The calculated amount the buyer must pay the seller

3. Supporting Documentation

• Purchase order
• Goods receipt note (GRN)
• Quality reports

4. Approval Process

• GST compliance and e-invoice/QR code
• Checking the signature
• Checking the linking of the invoice with the PO

5. Duplicate & Fraud Check

• Checking the duplicacy of the invoice
• Looking for suspicious details
• Ensuring the amount is within the approved limits

What Are the Steps in the Invoice Validation Process?

The invoice validation strategy involves core steps to follow. Before initiating the process, ensure all documents are ready.

1. Confirming Invoice Details

Initiating verification confirms the invoice details. It does not matter whether you receive incoming invoices in paper form or in electronic data interchange (EDI) format; the following invoice data is mandatory to check:

• Invoice number
• Invoice date
• PO number
• Due date
• Vendor name, address, and contact details
• Your or your company’s name, address, and contact details

These are the basic details you must ensure are in the correct form and that the invoice is legitimate. You must ensure these details are completed and easy to read. If anything is not upto the mark, raise the issue immediately. Contact the supplier directly to clarify.

2. Match the Supporting Documents

Next, matching the invoice to other documents, such as the purchase order and GRN. The invoice matching process is a little time-consuming. As per the transaction volume and your business size, you need to perform the matching process as follows:

• 2-way matching – Invoice with purchase order
• 3-way matching – Invoice with purchase order and goods/service receipt
• 4-way matching – Invoice with purchase order, receipt, and inspection/quality report

3. Check the Amount, Tax, and Terms

Once you’re done matching the document, the next step is to review the amount, tax, and terms. Ensure the total amount calculation is correct. Check the tax (if applied) and ensure it aligns with the applicable tax of your religion when checking invoices. Also, cross-check the payment terms and ensure they comply with the contractual agreements.

4. Follow Approval Policy

Proceed with the approval workflow to confirm accuracy with higher authorities. Different companies have different workflow policies. In general, the AP manager or head approves the invoice once they confirm everything is in order.

5. Schedule Payment

Once everything is confirmed, the next step is to schedule the payment. This is the final stage when you make the payment to the vendor. Keep the payment process as per the invoice date to avoid being overdue. It also helps in maintaining positive vendor relationships.

6. Finally, Archive Everything

Achieving all your supporting documents, like the invoice, PO, and proof of payment. This helps in a searchable audit trail. However, perform this task once the paperwork is complete.

Common Challenges in Invoice Verification

The invoice verification process often faces challenges that can hinder progress. Here are some of the challenges that professionals can face:

1. Missing Data on Invoice

Any missing data on the invoice is sufficient to delay verification. Certain invoice data, such as the invoice number, invoice date, and PO number, is important. Lack of, or incorrect, information on these details can slow the process, as it requires rectification.

2. Lack of Required Matching Documents

The required matching document is necessary for invoice verification. All up-to-date documents, including the purchase order, goods receipt notes, and quality reports, must be ready before the verification process.

3. Duplicate Invoices

Sometimes the vendor sends an invoice that has already been paid. This causes financial errors and the risk of double payments. This kind of issue is common but can cause loss and operational disruption.

4. Fraud and Compliance Risks

Invoice fraud is another challenge in the invoice checking process. Compliance risk is also high when documentation is inaccurate and processes are non-standardized.

How to Streamline Invoice Verification? Best Practices to Follow

While following some strategies, you can efficiently manage the invoice verification process. Here are the best practices:

1. Centralized Management

Maintaining all details and documents in a single centralized format is key to efficient invoice verification. For instance, you can manage all vendor details in a single master file and keep all involved teams on the same page. Similarly, manage all invoices in one place, in digital format.

2. Automate the Process

Automating the process is the best way to standardize verification. With the right automation, the company can save time and ensure accuracy. Features such as auto-capture and data extraction eliminate errors. Overall, integrating automation is highly beneficial to the process.

3. Conducting a Regular Audit

Another best practice is to streamline the invoice-checking process. Regular audits, such as monthly or quarterly, help identify discrepancies. Senior team members can perform auditing. However, adding automation can deliver the best results, allowing team members to save time and expedite the process.

4. Train Your Team

How efficient are you or your team at handling bill verification? It also matters a lot! As regulations and policies evolve, your team needs to stay up to date. Conducting a training session, discussing trending policies, and welcoming members’ suggestions are key priorities.

Automate Your Invoice Verification Process With Moon Invoice

Moon Invoice is an AI-powered invoicing tool that acts as the right-hand for business professionals in their invoice handling.

This cloud-based software offers a centralized digital platform. Thus, professionals can easily manage their invoices, purchase orders, vendor information, and other details in a single form. As the tool is cloud-based, it keeps all parties on the same page.

The application supports a quick scan that extracts details from the uploaded document. It further enhances the process by preventing manual data-entry errors and expediting the task. Hence, implement a smart approach for businesses to boost billing validation operations.

This invoicing application offers more than 66 customizable templates for creating invoices, estimates, and receipts. Users can easily create these documents with the commitment to accuracy and professional layout.

Moon Invoice supports 20+ payment integrations, including popular gateways such as PayPal and Stripe. Professionals can make payments with a single click, streamlining payment operations.

The platform enables users to generate 15+ customized business reports. Thus, users can easily gain insight into their finances and manage cash flow efficiently with accurate financial reporting.

Overall, Moon Invoice helps business professionals and the finance team manage business capital efficiently. Ultimately, this affects the invoice verification process.

Last Remarks

Incorporating invoice verification is very useful for businesses. Whether it’s a small business or a large enterprise, it is equally valuable for all types. While it requires additional time and effort, it also prevents the company from incurring losses. Most importantly, it also matters how you handle it. Stay up to date on the latest financial policies and leverage automation to streamline operations.

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